There’s no evidence that relying on a broker price opinion "exacerbates mortgage fraud or abuse," the National Association of Realtors said in a letter defending the use of BPOs in the Obama administration’s short-sale incentive program.
Industry groups representing appraisers are pushing for a ban on the use of BPOs to value short-sale properties in the Home Affordable Foreclosure Alternatives (HAFA) program, saying they open the door to mortgage fraud.
NAR says the groups have provided "misinformation" to the Treasury Department about the role of BPOs in mortgage fraud and the application of state laws governing BPOs.
in a March 8 letter to Treasury Secretary Timothy Geithner, the Appraisal Institute and three other groups representing appraisers warned that the HAFA program lacks safeguards to prevent mortgage fraud schemes like "property flopping," in which real estate agents help investors obtain distressed properties at deflated prices (see story).
Appraisers cited a report by Interthinx Inc. showing that mortgage fraud schemes involving short sales and "real estate owned" (REO) properties have increased by nearly 50 percent over the past year and doubled over the past two years.
But that study did not consider the method of valuation used for transactions that were suspected to be fraudulent, NAR said in a letter to Geithner and Housing Secretary Shaun Donovan.
Bill Garber, director of government and external relations for the Appraisal Institute, said that the current industry practice is to use BPOs "almost exclusively" in making loan modification and loss mitigation decisions.
In doing so, lenders and loan servicers "may very well be leaving a lot of money on the table," Garber said, because market complexities call for "enhanced due diligence, independence and competency" in valuing properties that appraisers can best provide. …CONTINUED
Appraisers also claim laws in 23 states limit real estate agents and brokers to performing BPOs only in the process of assisting buyers or sellers. Lenders or loan servicers who sign off on short sales do not own the properties and are not buyers or sellers, the groups said.
That claim is "simply incorrect," NAR told Geithner and Donovan. "We urge you to examine the relevant state statutes and not accept this argument at face value, as we believe the use of BPOs for short sale and other purposes is clearly permissible in most, if not all, states."
Garber said the Appraisal Institute stands by the assertion that more than 20 states require that anyone who is compensated for providing a valuation be a licensed appraiser, and that agents and brokers who are not licensed appraisers can provide BPOs only to assist buyers or sellers.
According to the Real Estate Valuation Advocacy Association — an industry group whose members include lenders and companies that generate appraisals, BPOs and automated valuation models (AVMs) — analysis of state laws needs to be fact-specific, and "generalizations are not very meaningful."
BPOs are "performed by people who are experienced in the local market," and limiting the flow of information "based on aggressive interpretations (of state law) does a disservice to all," the group says in a statement on its Web site, "Myths About Alternative Valuations."
In its letter to the Obama administration, NAR said BPOs "are completed by licensed real estate agents with a detailed knowledge and understanding of real estate pricing and local market trends developed through active participation in the listing, negotiation and sale of properties."
Agents have "a unique viewpoint that supports sound real estate decisions with accurate estimates," NAR said, and "BPOs are widely accepted in the real estate industry due to their established reliability and accuracy."
The Treasury Department did not respond to a request for comment.
HAFA program guidelines issued by the Department in November require that properties must be publicized in a multiple listing service (MLS) and marketed by the listing broker, and that a short sale "must represent an arm’s-length transaction."
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